Seeking Alpha: Xylem May Yet Be Better Than It Seems

It has been more than two years since I've publicly updated my thoughts on Xylem (NYSE:XYL). Back in early 2013, I thought that the company looked like a pretty typical example of an industrial that didn't immediately pop out as a bargain, but where I nevertheless expected further gains. That forecast has sort of worked out; I say "sort of" because although the shares are up about a third since that article, most of the progress was in the last quarter of 2013 and the shares have spent most of the rest of that time trading around the mid-$30s.

I think Xylem has made a lot of progress under its current CEO in fixing its operating structure and improving its margins. With that progress, it sounds as though the company is back on the hunt for acquisitions. The "but" is that the water market really doesn't seem to be what a lot of investors have long thought it was/would be. There's a long-term steady growth opportunity from maintenance and replacement and urbanization in emerging markets, but water isn't the municipal priority that some investors want to believe it to be, and strategic buyers have generally undervalued pumps (XYL's core business) relative to filtration, desalination, and other product categories.

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Xylem May Yet Be Better Than It Seems